Social Security Is Target of Plan to Control Deficit

Offering a radical solution to the federal deficit problem, the leaders of a bipartisan commission on Friday proposed cutting Social Security taxes, requiring all workers to open private retirement accounts and gradually raising the age for full retirement and Medicare benefits to 70.

“I intend to take this problem to the American people and have them solve it,” said Sen. Bob Kerrey (D-Neb.), co-chairman of the Bipartisan Commission on Entitlement and Tax Reform, as he unveiled a proposal that was immediately denounced by labor and senior citizens groups as a mean-spirited attack on the Social Security system.

Kerrey and his co-chairman, Sen. John C. Danforth (R-Mo.), offered their provocative plan to stimulate a national debate over the growth in spending for federal entitlement programs--Social Security, Medicare and Medicaid, government pensions, welfare and financial aid for farmers.

The entitlement commission is scheduled to vote Wednesday, with the goal of getting 20 of the 32 members to agree on recommendations for President Clinton. It seems doubtful, however, that Kerrey and Danforth can muster that support for their plan or any other.

The changes that the two senators called for would not take effect until after the year 2000. And the major impact would be restricted to workers now under age 40, Kerrey said. For example, the increase in the retirement age would come in stages until it reaches age 70 for full benefits in the year 2034. Currently a worker can collect full benefits at age 65.

Even before the commission opened its meeting Friday to discuss the Kerrey-Danforth plan, opponents were holding a news conference to denounce the proposals.

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The changes “would be a disaster for the working people who depend on programs like Social Security and Medicare to make ends meet when they retire,” said Thomas Donohue, secretary-treasurer of the AFL-CIO.

By making technical changes to make benefits less generous--slowing down annual benefit increases and tinkering with the formula used to calculate benefits--the proposal could reduce Social Security payments as much as 50% for future retirees, according to Robert Ball, a former Social Security commissioner.

Because African Americans have a shorter life expectancy than whites, the Kerrey-Danforth plan “literally precludes most African Americans from even being able to take advantage of Social Security,” said Wade Henderson, director of the Washington office of the National Assn. for the Advancement of Colored People. That, he said, could have the potential of “exacerbating racial tensions.”

And the nation’s largest senior citizens group, the 33-million member American Assn. of Retired Persons, denounced Kerrey’s plan as “short-sighted at best, mean-spirited at worst.”

The strongly worded attacks prompted one commission member, Sen. Alan K. Simpson (R-Wyo.), to tell his colleagues, “We are just about to be blasted out of the water with raw political fear.”

The debate focuses on whether entitlement spending represents a crisis or simply a problem. At current rates of spending, these popular programs--plus interest on the federal debt--will consume all federal tax revenues by the year 2012, leaving nothing for defense, education, job training or anything else.

The Kerrey-Danforth plan aims to slow the growth of entitlement spending in an effort to keep the federal deficit at the same share of the nation’s total economic output, about 2.5%. Wiping out the deficit entirely would require much deeper cutbacks.

Action must be taken now, Kerrey said, or the promise of Social Security and Medicare will be broken for “our children and grandchildren.

“We have promises on the table we can’t keep,” he said at the commission meeting Friday.

But critics insist there is no need for Draconian cuts. “These programs are a basic part of the society America aspires to be,” said David Saltz, an AFL-CIO spokesman.

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There is no crisis, the critics say. They note that Social Security is in ample surplus, taking in more revenues than it spends for benefits. The retirement fund won’t run out of benefits until the year 2029, and modest changes can be made over the coming years, they argue.

They also say that only two of 400 entitlement programs, Medicare--for persons over 65 and the disabled--and Medicaid--the health care program for the poor--are in bad financial shape.

The Kerrey-Danforth plan unveiled Friday would slow the growth of spending by raising the age for full Social Security and Medicare benefits to 70.

To provide an alternative source of funds for retirement, the Social Security payroll tax, now 6.2%, would be reduced to 4.7% for each worker. With the other 1.5%, workers would be required to open individual savings accounts that, with proper investments, would grow to provide money for retirement, Kerrey said. The extra savings would give workers money for retirement before they reach the age for Social Security benefits.

By making benefits less generous and increasing the retirement age, the government’s retirement fund should come into fiscal balance, according to the Kerrey-Danforth plan.

Medicare enrollees could choose to remain in the federal program or enroll in a private health insurance plan with a voucher paid for by the government.

For those who stay with Medicare, a premium would be imposed for the hospital trust fund, which is now financed from payroll tax revenues only. The deductible for doctors services under Medicare would be increased to $300 from its current level of $100 a year, and beneficiaries would be required to pay additional amounts for the cost of laboratory tests and home health care services.

Payments would be reduced to doctors and hospitals.

All other entitlements, including farm price supports and welfare payments, would be cut by 10% and their growth would be limited to reflect changes in the consumer price index and the increase in population.

More on Social Security

* A copy of the announcement from Sens. Kerrey and Danforth, along with an accompanying chart detailing their proposal, is available from Times on Demand. Call 808-8463 and press *8630. Select option 1. Order Item No. 2813. $1. Material sent by either fax or mail.